The following is a post which originally appeared at Budgets are Sexy.
Last year I wrote a guest post for Budgets are Sexy titled 10 Things I Didn’t Expect in Early Retirement. The post detailed ten awesome things I had discovered about early retirement.
The article was picked up by Business Insider and created quite a bit of publicity. Its message is popular with a broad audience so BI runs it again every now and then. When that happens a new wave of readers visit this site as well as mine.
A recent re-run of this post brought a new reader here who left this comment:
I know this is an old post, but I just recently found it in my news feed. I retired 9 months ago at age 47, and I have the same 10 surprises with little regrets, too. This is a great summary of how I currently feel.
But it’s NOT all just good surprises and there can be a dark side, so I would hope you could balance the positives with a few negatives to paint a clearer picture. Maybe you could do another post with a list of the potential downsides? I’m not talking about money concerns here: the top of my list is social isolation.
After receiving this comment, J Money forwarded it to me and asked if I was up for a “one year later” post covering some early retirement drawbacks instead of the positives.
While I have not experienced much of any of the downsides associated with early retirement, I have followed the subject closely for years and realize there are some. With that said, I’d like to share ten early retirement downsides to consider as part of an early retirement decision. I’ll also include ways I’ve overcome some of these plus suggestions for avoiding them.
And while the commenter wanted to focus on non-financial issues (and social isolation specifically), there are significant monetary downsides to early retirement. Leaving these out would make the post incomplete in my opinion, so my list will include both monetary and non-monetary downsides.
With that said, let’s get on to the list (in no particular order)…
#1. Loss of Income
Let’s face facts, the reason people go to jobs they (generally) dislike and put up with all the politics, long commutes, brutal hours, and so on is because of the money. Very few people would “keep working even if they didn’t pay me.” Therefore, the loss of income has to be listed as a big downside for almost all early retirees.
Just the thought of losing an income is enough to stop potential early retirees in their tracks. My parents are an example of this. They would like to retire (not early, mind you) but my dad just “keeps thinking about all that money I’ll leave on the table.” At this point I’m not sure he’ll ever retire because he fears the loss of income too much.
Of course anyone can plan to combat this issue through several means:
- Knowing your retirement spending needs
- Saving enough to cover expenses (i.e. drawing down assets to pay for retirement)
- Investing assets to generate income (real estate, dividend investing, etc.)
- Building in margins of safety into your financial plan.
But all of these require planning, self-control, and at least a basic understanding of personal finances. Many Americans are not so keen on any of these much less all of them.
To be honest, I considered this downside myself, though most of it was before I retired. I made a great salary for most of my career. During my 50’s alone I was set to cash in big-time. But the truth was, I already had enough a DECADE before I actually retired. I finally discovered that I could stop accumulating assets and move on. That said, I still wonder from time to time how I might have spent that few extra million dollars I gave up.
#2. Reduced Social Security Income
My financial plan is based on zero help from Social Security. If I get one penny from the government it will be more than I’m planning on.
But for those who need Social Security to retire early (or perhaps need it later in retirement), retiring early is going to put a huge dent in what you’ll receive.
Here’s a somewhat understandable explanation of how Social Security benefits are calculated with the key part highlighted:
All workers paying FICA (Federal Insurance Contributions Act) and SECA (Self Employed Contributions Act) taxes for forty quarters of credit or more on a specified minimum income or more are “fully insured” and eligible to retire at age 62 with reduced benefits and higher benefits at full retirement ages, FRA, of 65, 66 or 67 depending on birth date.
Retirement benefits depend upon the “adjusted” average wage earned in the last 35 years. Wages of earlier years are “adjusted” before averaging by multiplying each annual salary by an annual adjusted wage index factor, AWI, for earlier salaries. Adjusted wages for 35 years are always used to compute the 35 year “average” indexed monthly salary. Only wages lower than the “ceiling” income are considered in calculating the adjusted average wage.
If the worker has fewer than 35 years of covered earnings these non-contributory years are assigned zero earnings. If there are more than 35 years of covered earnings only the highest 35 are considered. The sum of the 35 adjusted salaries (or less if worker has less than 35 years of covered income) times its inflation index, AWI divided by 420 (35 yrs x 12 months/yr) gives the 35 year covered Average Indexed Monthly salary, AIME.
So if you work 35 years, your total is based on those years. If you work less than 35 years, your total is based on the years you worked plus zeroes averaged in for the years you didn’t work, dramatically lowering your benefits.
As an example, let’s say Joe worked 35 years and averaged $50,000 in income those years. His Social Security would be based on that $50k average.
Now let’s say Joe’s twin, Jim, retired early. He worked 20 years at $50k and the other 15 years at $0. Jim’s Social Security would be based on an average of $28,571 (($50k * 20)/35).
So if you’re going to need all the money you can get from Social Security, retiring early can be a significant downside.
#3. Healthcare Insurance Issues
Between my websites I have interviewed millionaires for years.
I changed the questions several months ago and this one was added to the list:
Are there any issues in retirement that concern you?
Almost every single one of them mentions health insurance. And these are millionaires! If they are worried about affording medical insurance, how does the rest of the world stand a chance?
Retiring early further aggravates the issue because there are limited options prior to Medicare.
Insurance under the Affordable Care Act is not affordable for most people with even an average income. Others don’t like the criteria imposed by alternatives like health sharing ministries, are concerned by their ability to pay, and/or don’t qualify (they often mandate the insured avoid several activities that are known to cause health issues, like smoking).
We have used a health sharing ministry since I retired, pay a fraction of what we would under the ACA, get better coverage, and have seen it pay out for us. I know many others who have similar testimonies from other health sharing companies.
Some other options that have worked are healthcare coverage locked in by time of service (like in the military or provided to teachers in some school districts), one spouse keeps working to provide insurance, or taking a basic job just to cover health insurance (for example, with Starbucks).
However there are few alternatives and all come with as many problems as solutions. It’s clear why millionaires and any other early retirees would be concerned about this downside.
#4. Mental Decline
You’ve probably heard the phrase “use it or lose it.” Well, it appears that this could be the tagline for our brains. And early retirement could be just the thing to turn our minds to mush.
Consider this from the UK:
New research shows that brain function declines rapidly as soon as people stop work and put their feet up.
A major British study which tracked 3,400 retired civil servants found that short-term memory declines nearly 40 percent faster once employees become pensioners.
It appears that the lack of regular stimulation takes a heavy toll on cognitive function and speeds up memory loss and dementia, researchers warned.
In other words, if you don’t use it, you’ll lose it.
It’s a wonder that the retirees of old survived past a couple years with all the leisurely pursuits (like TV, bowling, etc.) they pursued after quitting work.
Obviously there’s a great solution to this: Keep learning and growing. Try new things. Challenge yourself.
Most of the early retirees I’ve met aren’t sitting at home eating Twinkies and watching Game of Thrones for the fourth time. They have passions and pursue them. And many of their interests include brain-enhancing activities.
The past two years have allowed me to participate more often in many activities that challenge my mind including:
- Reading more than ever (I’d include listening to podcasts here as well)
- Buying a business and growing my personal site
- Managing my rental properties (limited time since I use a property manager, but I still need to stay sharp to keep them on their toes)
- Playing more chess
- Traveling more and learning lots along the way
And there are many other ways to keep your mind sharp. Here’s a piece from Harvard listing 12 ways to keep your brain young. Most of them have to do with getting and staying physically fit.
Of course, if your idea of retirement is lounging all day in front of a computer watching cat videos, you’ll probably have problems.
The key is that you need a plan to USE your brain so you don’t lose it.
#5. Physical Decline
Put this one in the “use it or lose it” camp as well.
Unfortunately, that’s not the only physical problem for early retirees. Here’s a summary of the issues from the Harvard Medical School:
A new salvo comes from researchers at the Harvard School of Public Health. They looked at rates of heart attack and stroke among men and women in the ongoing U.S. Health and Retirement Study. Among 5,422 individuals in the study, those who had retired were 40% more likely to have had a heart attack or stroke than those who were still working. The increase was more pronounced during the first year after retirement, and leveled off after that.
The results, reported in the journal Social Science & Medicine, are in line with earlier studies that have shown that retirement is associated with a decline in health. But others have shown that retirement is associated with improvements in health, while some have shown it has little effect on health.
In their paper, Moon and her colleagues described retirement as a “life course transition involving environmental changes that reshape health behaviors, social interactions, and psychosocial stresses” that also brings shifts in identity and preferences. In other words, moving from work to no work comes with a boatload of other changes. “Our results suggest we may need to look at retirement as a process rather than an event,” said lead study author J. Robin Moon, who is now a senior health policy advisor to New York Mayor Michael Bloomberg.
These changes may be why retirement is ranked 10th on the list of life’s 43 most stressful events. Some people smoothly make the transition into a successful retirement. Others don’t.
Understanding how retirement affects a large group of people is interesting, but doesn’t necessarily have anything to do with how it will affect you.
That last point is key. The results above are general, not specific. The group overall has these results but any given individual may be significantly better or worse off.
Basically, if you have plans that will keep you busy in retirement and you hated your job in the first place, retirement is probably going to be great for you.
If you have no idea what you might do in retirement, it might be rough on you (and your health).
Personally, retirement has been a huge win for me health-wise. I now have the time to workout six times a week and walk 15,000 steps a day. I hired a trainer and kept him the first year of retirement (I now have enough routines to keep me busy) and he whipped me into the best shape in my life.
So it’s like much of life: If you have a plan for positive change, retirement can be a great time filled with better health. If you have no plan and simply let life “happen”, it probably won’t turn out well.
#6. Loss of Social Interaction
Now we get to the issue brought up by the original commenter. Retiring often severs relationships (especially those around work) which is quite hard for many people. And much of the research above will back this up — loss of social interaction is a bad thing.
Personally, this is zero issue for me because:
- I grew up as an only child to a single, working parent. Much of my childhood was spent alone and I actually like it that way.
- My key relationships are with my family — both my immediate and extended family. Retiring early allowed me a year at home with my daughter before she went to college. It allows me to take two walks a day with my wife. It allows me to go to the movies with my wife and son in the middle of the afternoon (on discount day, of course). It allows me to call my mom more often and chat for longer. It allows my dad to visit without me having to dole out limited vacation time. In other words, the social interactions that are most important to me have vastly improved in retirement.
- We retired in Colorado and when you retire here, people come to visit you. We have so many visitors every year. And we can actually spend time with them since I don’t have to work.
- I see people in other places — the gym, at church, at neighborhood events, etc. If anything I do MORE of these things since I’m not exhausted by work commitments. I remember not going to many neighborhood parties because I was too mentally exhausted from work or had to work the next day. Now I don’t have those concerns.
- Work relationships were never my main social connection. Sure, I spent the most time with people at work, but it wasn’t like they were my family. They were great and I developed some close friendships, but I didn’t see work as a social club. It was WORK.
All that said, I know many people get lots (most? all?) of their social interactions from work and from friendships related (directly or indirectly) to work. So retiring early can be pretty hard for them.
To this group I’d offer the following ways to get their needed social connections:
- Join a club. Cards, cycling, singing, whatever. Do something you like that involves others.
- Go to a gym. My wife takes classes at our gym and has made several friends there.
- Visit a church. Hey, they are supposed to be friendly to you, so take advantage of it.
- Volunteer. Non-profits can use your time and experience.
- Be more neighborly. Get out and meet your neighbors. Check out Next Door as there’s always something going on. If there isn’t, organize a 4th of July BBQ or Christmas party and invite everyone. We have both of those in our neighborhood, plus someone usually rents a bounce-house for Halloween which is the place all the grown-ups congregate to chat while the kids raid the neighborhood.
I could go on, but you get the idea.
Now if you’re the kind of person who doesn’t make friends easily, let me suggest you learn to do so. That’s a double win: it will be a challenge for your mind that will also satisfy your need for social interaction. 🙂
#7. Loss of Identity
I think it’s no secret that for some people what they do is who they are. Then when the job is over, they don’t know who they are any more.
They have spent 30 years at something that’s taken the majority of their time, effort, focus, energy, and whatever else they have. When that goes away, what’s left?
This is a tough issue for many and the only way through it is to find new activities to replace the time and meaning they got from work. These could be recreational (hobbies, traveling, etc.), volunteer (church, non-profits, etc.), or even occupational (a part-time job to help them feel productive again.)
Even so, if a person’s identity is so closely tied to a specific job (doctor, lawyer, teacher, etc.) and that’s gone, then it may be hard for them to get over the loss. If this is you or someone you know considering retirement, you may want to think long and hard before you retire early.
As an alternative, you may want to seek professional help if you think this issue will present a real challenge for you.
I liked my job, but it never defined me. I was a husband, father, and simply a person well ahead of being a business executive, so I never really dealt with this concern.
I also think this downside was more common in the past when people worked in one industry or for one company their entire working lives. As that has changed I believe those who connect so closely with their profession for it to be a major retirement issue has declined as well.
I know. This sounds like an angsty adolescent. “I’m bored!”
This is a downside that’s similar in cause to the last one: it impacts those whose work is such a large part of their lives.
For some people, work is their life. They eat, sleep, and breathe work. As such, they develop few (if any) outside interests.
Once work is gone some lose their identity, some grow bored, and some experience both.
Of course the solution to this is to develop some outside interests. And better yet, these interests should be considered/explored prior to retirement to see which ones stick and which ones aren’t of interest.
I worry about my dad being bored. Most of his life has been about a few things: work, watching TV, and a trip out to eat/shop once a week. I have never seen him read a book and only occasionally look over a magazine. He has no hobbies. When work is gone for him, what will he do? It’s a very good question.
Even if your interests are a bit broader, boredom can be an issue. You can only watch so much TV, play so much golf, and read so many books. You have to have other interests or retirement will be B-O-R-I-N-G.
On the other hand, if you have a list of things you’d like to do or try, then retirement will be a blast.
Here are some of the things I’ve added since I retired:
- Exercising more.
- Spending more time on my websites (including buying a new one).
- Traveling more. I’ve been to Grand Cayman, DC twice, Seattle, Portland, Dallas, and home to see my parents three times.
- Two-times daily walks with my wife.
- Volunteering at church (I’m an usher.)
- Spending more time with Colorado visitors.
- Cooking more. I grill at least once a week these days.
- Get out into nature and hit the trails. There are many options here in Colorado.
And my list is still full of things I want to do. Here’s a sample:
- Learn to sail.
- Learn to scuba dive.
- Hike Pikes Peak.
- Complete The Incline in less than an hour.
- Find a board position for a non-profit.
- Write a book or two (maybe).
- Visit at least one Caribbean island each year.
And there’s more…plus is seems like every time I take one thing off the list I come up with two more to replace it!
#9. Spouse Overload
In many households (either one spouse at home and the other one works or both work) the couple is used to spending significant time apart.
When one retires and joins the other at home (or they both retire and join each other), the couple could be thrust into close contact for several hours each day. It’s different for sure. Is it better or worse? That depends.
One of the most frequently asked questions I got when I retired was, “What does your wife think about you being home so much?”
My wife LOVES it. We take walks more than ever, we travel more than ever, we talk more than ever, and on and on.
And we still have our own interests, so it’s not like we’re joined at the hip 24/7. It’s been a big win for us.
But if it’s a problem for you or your spouse (or could be), then you’re going to have to deal with it. Have some conversations prior to retirement. Many of the suggestions above (developing new interests, friends, etc.) will lead to time apart for spouses which could be helpful.
Now if you hate spending any time with your spouse or vice versa, then I’m not going to be able to help you with that one. That is for a completely different post…
#10. Lack of Challenge/Purpose
For many people, their career is their purpose in life. They work. That’s what they do. It’s what they were “meant” to do. Once they retire their purpose is…what exactly?
For others, work is a challenge, they are type A’s that need a mountain to climb. Then when they don’t work, their mountain is…what?
I can’t really identify with the first group. Work was never my purpose in life. If it is for you, I suggest you consider finding a new purpose before you quit. Someone with no purpose is not going to be a happy camper.
I do identify more closely with the second group. For me business was a great big challenge. The scores were tallied in sales and profits and after every accomplishment there was another challenge waiting. Yes, I was a bit obsessive about it, but that’s what growing up poor does to some people — it lights a fire in them.
So I had to learn to channel that energy into other pursuits: developing my websites, getting in great shape, traveling to new locations, and so forth. I’ve seen others take new jobs that paid less but they liked better. Still others have written books, started RV adventures around the U.S., or taken a position as a full-time volunteer.
In my experience this downside can usually be overcome with simply a bit of thought and planning.
How to Avoid the Downsides
There are the ten downsides to early retirement. If you can think of some more, please leave them in the comments below.
Before I sign off, let me make a few general comments about these downsides:
- If you plan well financially, the money issues go away.
- If you consider what you’ll do in retirement and have plans to address the downsides, you’ll be fine. As someone once said, those who retire to something have good retirements. Those who retire from something usually have challenges. Make sure you have something to retire to.
- The same traits (planning, being diligent, etc.) that allow someone to retire early are generally the same traits that can help them have a great retirement — as long as they put them into practice.
- For me, the downsides have been almost non-existent. My biggest regret in retiring early BY FAR was that I didn’t do it much, much earlier when I hit financial independence. But I can’t turn back time, so I’m making the most of each day now. This is why my suggestion for everyone thinking about retiring early is “DO IT ASAP!”
And if you do retire and the downsides become too much for you, you can always go back to work if you leave the right doors open.
Great post. Thank you for sharing your insights.
I retired at 58 and should have done earlier. It’s all about planning and understanding the risks financially and otherwise. Early retirement means freedom which money can’t buy!
11 months into retirement I can appreciate all the points in the article. I haven’t completely figured out how to have my best life but it’s getting better. This is definitely a process for me. My biggest challenge is the fear of running out of money. This is mostly unrealistic but a challenge for me nonetheless. Another great ESI article!
Some good insights and advice here. It really boils down to- think ahead, know yourself, and plan well!
Depending on one’s family (or cultural) dynamics, one downside may be that others may make more demands on your time, energy and even money. After all, you’re retired! Kids may ask/expect more help with the grandkids, other relatives may think it’s OK to ask for financial support, etc.
Really enjoyed this as have been doing a lot of reading early retirement and #1 mentally is the biggest for me and it is weird as I know I can retire and not worried about having enough for retirement but it is the looking back and knowing I am throwing away lucrative earning opportunities is still a hurdle + enjoy my job, work mostly from home and have lots of time for family and friends (although not as much for personal hobbies). Guess it is a “challenge” of being hard wired to grow net worth since I was very young, seeing the success after years of hard work is a hard cycle to break and getting more educated on what to expect which is why I love your newer retirement series of articles.
Three and a half years into retirement and none of those have materialized in my life. I did fear the identity thing because I was a regional celebrity of sorts. I decided to do a variety of part time consultancies including engineering, expert witnessing and regulatory intervention and these eliminated most of those issues by just working a day or two a week. Plus I kept my nonprofit board positions and they keep me engaged and visible in the community and let me serve others. I think everyone’s mileage varies but people like you and me don’t struggle much with this new life because we are in motion and getting things done. One strange thing is the combination of being older and having more time is getting too much exercise, tennis and running in my case, and ending up totally exhausted much of the time. Especially during our brutal summers. I would feel a lot better if I got a little less exercise and a little more rest. But where’s the fun in that?
There are downsides, but a lot of them can be mitigated as you did.
I’d like to point out that the Social Security issue isn’t a big deal for most early retirees. People that retire early usually made a very good income. Most of them probably already passed the second bend point by the time they retire early. It’s not a big increase after that.
One downside that I didn’t see on your list is that I’m less resilient to stress. I was stressed out all the time when I was working. That’s not good, but I could struggle along. Now, life is great, but stress is much harder to deal with.
Two comments on “togetherness”. One book author claimed she was experiencing the “half-double” retirement. Half the income and double the husband.
One partner retired and his other half is a barber (Mondays off). Partner still has to leave the house and find something else to do on Mondays so Tom the barber can get his house stuff done.
Mark Adkins says
Incline in less than 1 hour! You have to be from Colorado Springs to truly appreciate that goal. Best workout I have ever done. When I was stationed there in the Air Force, I did the incline 2 to 3 times a week. Watch your speed going through Manitou Springs.